6 Currency Trades That Aren't Bitcoin

These 6 ETFs represent fully vetted forex vehicles for traders leery of cryptocurrency

Karee Venema
Dec 11, 2017 at 3:00 PM
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Bitcoin futures began trading on the Cboe Global Markets exchange under the code XBT -- bringing more attention to the surging cryptocurrency. At last check, the January contract was trading near $17,970, after climbing as high as $18,850 earlier. The March contract, meanwhile, reached as high as $19,330, before scaling back to its present perch at $18,390. The volume has helped lift the value of bitcoin, too, which is up more than 10% to trade near $16,575, according to CoinDesk.

While bitcoin's meteoric rise is impressive, the affordability factor for the digital currency has left many speculators sidelined. Thankfully for retail-level traders, alternatives exist -- including the potential to trade options on stocks with exposure to bitcoin. And for those who just aren't ready to dive into the loosely regulated bitcoin market, check out this list to find some slightly more traditional currency trading vehicles.

Betting on the Buck with UUP

The PowerShares DB US Dollar Index Bullish Fund (UUP) tracks the Deutsche Bank Long US Dollar Futures Index, which is designed to replicate the performance of being long the U.S. dollar, and short the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. Looking at the charts, UUP hit its 2017 peak on Jan. 3, topping out at $26.83. The shares fell to a year-to-date low of $23.66 on Sept. 8 -- a period in which net outflows on the fund reached $216.7 million, according to ETF.com.

A rally off this bottom was halted near $24.75 in late October and early November, a region that coincides with a 38.2% Fibonacci retracement of UUP's March through September decline, while a retreat from here found support near $24.10 -- a 61.8% retracement of this recent rebound attempt. UUP was last seen trading at $24.41, following Friday's rejection at its 30-day moving average, which has served as support and resistance throughout the year.

Given UUP's early September bottom, it's possible one options trader in the subsequent sessions initiated a long call spread to bet on a bounce in the dollar -- but reduced their risk and breakeven level by combining the bought strike with a sold one. Specifically, the January 2018 25- and 26-strike calls are home to peak open interest of 162,898 contracts and 132,175 contracts, respectively, and it seems the bulk of the action at each strike occurred on Sept. 11.

While it's not entirely clear how these calls were used, if a trader did initiate a bullish spread by selling to open the higher strike to fund the purchase of the lower strike, they expect UUP to rally right up to $26 -- home to the fund's early April highs -- by January options expiration. In this best-case scenario, they could pocket the full potential reward, which is limited to the difference between the two strikes, less the net debit. Losses are limited to the initial premium paid, and would be realized should UUP settle at or below $25 at expiration.

These Euro ETF Options Are Priced to Move

The Guggenheim CurrencyShares Euro Trust (FXE) tracks the price of the euro against the greenback. The shares have had a breakout year -- up 11.1% in 2017 so far, pacing toward their best annual return since 2006. And while the trust has pulled back from its two-year high of $116.39 -- notably tagged on Sept. 8 -- it is holding above $113, last seen at $113.67.

This region coincides with a 23.6% Fibonacci retracement of FXE's 2017 surge, and is home to the 40- and 120-day moving averages. While the former trendline served as resistance in mid-October, the latter has ushered the shares higher for most of the year and helped contain a late-October retreat.

Those expecting the euro to hold above support in the near term may want to consider buying FXE calls. The trust's 30-day at-the-money (ATM) implied volatility (IV) of 5.9% ranks in the 3rd annual percentile, indicating lower-than-usual volatility expectations are being priced into short-term options -- a potential boon to premium buyers.

Trading Brexit with FXB

Guggenheim CurrencyShares British Pound Sterling Trust (FXB) is designed to replicate the action in U.K.'s pound sterling against the U.S. dollar. The trust has been chopping higher atop its 120-day moving average since late March, as Brexit chatter has fueled volatile moves in the pound. This trendline caught FXB's pullback from its Sept. 20 annual high of $132.65.

The trust was most recently seen within striking distance of that milestone, trading at $129.76, up 7.9% year-to-date, even as net outflows hover near $101 million so far in 2017. What's more, the shares are on track for their strongest January-December return since 2009.

As of Monday, FXB's 30-day historical volatility registered in just the 15th percentile of its annual range. Nevertheless, the fund's short-term options are pricing in elevated volatility expectations -- per its 30-day ATM IV reading of 8.9%, which ranks higher than 67% of comparable readings taken in the past year. This suggests a premium selling strategy, such as a bull put spread, could be ideal for those looking to trade FXB options.

An Income-Generating Play on the Yen

The Guggenheim CurrencyShares Japanese Yen Trust (FXY) tracks the price action of the Japanese yen versus the U.S. dollar. For most of 2017, the shares have been ricocheting between support near $84 and resistance near $89.20, the latter of which coincides with a 23.6% retracement of FXY's surge from June 2015 to August 2016. At last check, FXY was trading near the lower end of this range at $84.59.

While put open interest is relatively muted at the moment -- the 37,186 puts open arrives in just the 30th annual percentile -- options traders are more call-heavy than usual. In fact, the 30,593 calls outstanding ranks in the elevated 83rd percentile of its annual range.

FXY's January 2018 95-strike call is home to peak call open interest of 4,572 contracts -- most of which were initiated in September 2016, according to Trade-Alert, when the shares were trading just north of $94. Data points to possible sell-to-open activity here, suggesting speculators were setting a long-term ceiling for the shares, or potentially looking to generate additional income on portfolio positions via a covered call strategy.

FXA Goes Down Under

The Guggenheim CurrencyShares Australian Dollar Trust (FXA) tracks the price of the Australian dollar against the greenback. After peaking squarely at $81 in late September -- a two-year high -- FXA started declining sharply, breaching key technical levels in the process.

In addition to surrendering the 200-day moving average following a late-October bear gap, the shares are now trading below the $76.30 region, which corresponds to a 61.8% retracement of the trust's rally from May to September. This level quickly contained a recent rally attempt, and has sent FXA to territory not seen since mid-June -- trading at $75.35.

And while total open interest on FXA is made up of just 5,933 contracts, this represents elevated interest on the part of options traders, considering it ranks in the 87th annual percentile. Puts hold a resounding lead over calls, with 4,308 of the former and 1,625 of the latter currently outstanding.

More than 71% of these put options are open at the December 75 and 77 strikes. While FXE has been trading below the $77 level since early November, the $75 region could serve as a magnet for the shares in the lead-up to front-month options expiration at the close this Friday, Dec. 15.

Euro Traders Hedge On the Cheap

The ProShares UltraShort Euro ETF (EUO) tracks twice the inverse daily performance of the euro versus the U.S. dollar. From April to September, the exchange-traded fund was stuck in a channel of lower highs and lows -- eventually hitting a two-year low of $20.85 on Sept. 8.

The shares' rally from here was short-lived, however, with the $22.50 region emerging as a ceiling in late October and early November. This level, which coincides with a 50% retracement of EUO's surge from May 2014 through March 2015, served as a floor for the shares in August 2015 and May 2016. At last check, EUO was trading near $21.88.

Against this backdrop, it's possible those who purchased new positions at the out-of-the-money December 22 and January 2018 23-strike calls -- EUO's two top open interest positions -- are using the options as a hedge. Regardless, it's an attractive time to buy premium on the fund's short-term options. Trade-Alert pegs EUO's 30-day ATM IV at 14.1% -- in the 24th annual percentile, meaning lower-than-usual volatility expectations are being priced in.


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